5 United Nations investigation into the Oil-for-Food Programme

5.1 As discussed in Chapter 1, in 1990, by Security Council Resolution 661, the United Nations imposed sanctions on member states trading with Iraq. In 1996, by Resolution 986, the United Nations established the Oil-for-Food Programme. Under the programme Iraq was permitted to export crude oil to such persons, bodies or companies as it might choose. However, the proceeds of these sales were to be paid by the purchasers to the United Nations and held in an escrow account under the control of the United Nations in a bank account in New York. The funds in the escrow account were to be used for the purchase of humanitarian goods and services, including the purchase of food.

5.2 In March 2003 armed forces from certain member states entered Iraq. This led to the toppling of the regime headed by President Saddam Hussein. There became available to the United Nations documents and records relating to trading by the previous Iraqi regime. The United Nations established a committee called the Independent Inquiry Committee into the United Nations Oil-for-Food Programme. The committee was chaired by Mr Paul A Volcker, a former chairman of the US Federal Reserve Bank. The committee prepared and published a number of reports on its inquiries. Its terms of reference were:

The independent inquiry shall collect and examine information relating to the administration and management of the Oil-for-Food Programme, including allegations of fraud and corruption on the part of United Nations officials, personnel and agents, as well as contractors, including entities that have entered into contracts with the United Nations or with Iraq under the Programme:

(a) to determine whether the procedures established by the Organization, including the Security Council and the Security Council Committee established by Resolution 661 (1990) Concerning the Situation between Iraq and Kuwait (hereinafter referred to as the "661 Committee") for the processing and approval of contracts under the Programme, and the monitoring of the sale and delivery of petroleum and petroleum products and the purchase and delivery of humanitarian goods, were violated, bearing in mind the respective roles of United Nations officials, personnel and agents, as well as entities that have entered into contracts with the United Nations or with Iraq under the Programme;

(b) to determine whether any United Nations officials, personnel, agents or contractors engaged in any illicit or corrupt activities in the carrying out of their respective roles in relation to the Programme, including, for example, bribery in relation to oil sales, abuses in regard to surcharges on oil sales and illicit payments in regard to purchases of humanitarian goods;

(c) to determine whether the accounts of the Programme were in order and were maintained in accordance with the relevant Financial Regulations and Rules of the United Nations.[266]

5.3 The Independent Inquiry Committee's final report, entitled Manipulation of the Oil-for-Food Programme by the Iraqi Regime, was issued on 27 October 2005. In its summary the IIC stated:

This report illustrates the manner in which Iraq manipulated the Programme to dispense contracts on the basis of political preference and to derive illicit payments from companies that obtained oil and humanitarian goods contracts …

Under the Programme, the Government of Iraq sold $64.2 billon of oil to 248 companies. In turn, 3614 companies sold $34.5 billon of humanitarian goods to Iraq. [267]

5.4 The IIC found that in contracts for the sale of oil and in contracts for the purchase of humanitarian goods what were described as 'surcharges' were paid, and in contracts for the purchase of humanitarian goods 'humanitarian kickbacks' were paid to Iraq.[268] I will return to the expression 'humanitarian kickbacks'.

5.5 In its summary the IIC stated:

The Committee emphasizes that the identification of a particular company's contract as having been the subject of an illicit payment does not necessarily mean that such company-as opposed to an agent or secondary purchaser with an interest in the transaction-made, authorised or knew about an illicit payment. [269]

5.6 In relation to the sale of oil and 'illicit payments' or 'surcharges', the IIC wrote:

Under the rules of the Programme, Iraq was free to sell its oil so long as it was sold at what the United Nations decided was a fair market price and the proceeds of each sale were deposited to a UN-controlled escrow account, to be used only for humanitarian and other purposes allowed by the Security Council.

It was a basic assumption of the Programme that Iraq-not the United Nations-would choose its oil buyers. Yet the decision to allow Iraq to choose its buyers empowered Iraq with economic and political leverage to advance its broader interest in overturning the sanctions regime. Iraq selected oil recipients in order to influence foreign policy and international public opinion in its favour. Several years into the Programme, Iraq realised that it could generate illicit income outside the United Nations' oversight by requiring its oil buyers to pay 'surcharges' of generally between 10 to 30 cents per barrel of oil … The surcharge policy started in the autumn of 2000 and lasted through the autumn of 2002. Payments flowed mostly to Iraq-controlled bank accounts in Jordan and Lebanon, as well as by cash deposit to Iraqi embassies in Moscow and elsewhere. The Iraqi regime ultimately derived $228.8 million of illicit income from the payment of surcharges in connection with oil contracts under the Programme. [270]

5.7 In relation to the purchase of humanitarian goods and 'illicit payments', the IIC reported:

Iraq's largest source of illicit income from the Programme came from the 'kickbacks' paid by companies that it selected to receive contracts for humanitarian goods under the Programme. These payments to the Iraqi Regime were disguised by various subterfuges and were not reported to the United Nations by Iraq or the participating contractors … Available evidence indicates that Iraq derived more than $1.5 billon in income from these kickbacks.

As with its selection of oil purchasers, political considerations influenced Iraq's selection of humanitarian vendors. For the first several years of the Programme's operation, however, Iraq did not have in place a formal kickback policy. The kickback policy emerged only over time as the Programme extended for a longer period and involved larger amounts than anticipated. The policy began in mid-1999 from Iraq's effort to recoup the reported costs it incurred to transport goods to inland destinations after their arrival by sea at the Persian Gulf port of Umm Qasr. Rather than seeking approval from the United Nations for compensation of such costs from the Programme's escrow account, Iraq simply required contractors to make such payments directly to Iraqi-controlled bank accounts or to front companies outside Iraq that, in turn, forwarded the payments to the Government of Iraq. Not only were these side payments not authorised under the Programme, but it was an easy matter for Iraq to impose 'inland transportation' fees that far exceeded its actual transportation costs.

By mid-2000, Iraq instituted yet a broader policy to impose generally a ten percent kickback requirement on all humanitarian contractors-including contractors shipping goods by land as well as contractors shipping to Umm Qasr. This broader policy was in addition to the requirement for contractors to pay inland transport fees. Iraq dubbed its more general kickback requirements as an 'after-sales-service' fee. After-sales-service provisions often were incorporated into contracts as a basis to inflate prices and permit contractors to recover from the United Nations escrow account amounts they had paid secretly to Iraq in the form of kickbacks. Contractors ordinarily made these payments before their goods were permitted to enter Iraq. For ease of reference, this form of kickback is referred throughout as an after-sales-service fee, although Iraq often collected a ten percent fee without labelling it an 'after-sales-service' fee or without inserting an after-sales-service provision in the applicable contract.

Many companies freely went along with Iraq's demands. Others made payments to third parties or agents while disregarding the likely purpose of these payments or perhaps unwittingly. Kickbacks were paid in connection with the contracts of more than 2200 companies in the form of inland transport fees, after-sales-service fees, or both.[271]

5.8 In a statement issued on behalf of the Secretary-General of the United Nations, Mr Kofi Annan, when the IIC's report was released on 27 October 2005 it was noted:

A vast network of kickbacks and surcharges has been exposed, involving companies registered in a wide range of member states, and certified by them as competent to conduct business under the Programme. He [Dr Annan] hopes that national authorities will take steps to prevent the recurrence of such practices in the future, and that they will take action, where appropriate, against companies falling within their jurisdiction.[272]

5.9 Following that request, the Australian Government established this Inquiry, to determine whether the activities of the Australian companies mentioned in the final report, or persons associated with them, might have breached Commonwealth, State or Territory laws.

5.10 Three Australian companies were mentioned in the IIC's final report:

The expressions 'illicit' and 'kickbacks '

5.11 On 21 April 2004 the Security Council adopted Resolution 1538. The preamble to the resolution expressed the Security Council's desire to:

… see a full and fair investigation of efforts by the former Government of Iraq, including through bribery, kickbacks, surcharges on oil sales, and illicit payments in regard to purchases of humanitarian goods, to evade the provisions of Resolution 661 (1990) of 6 August 1990 and subsequent relevant Resolutions …[274]

5.12 It is apparent from this resolution and from the summary paragraphs quoted that, when the Independent Inquiry Committee wrote in its final report of 'illicit income' and 'illicit payments', it used the expression 'illicit' to mean income or payments that were not within the broad scope or intention of Resolution 661, in particular, and of Resolution 986. The intention of those resolutions was to deprive the Iraqi Government of funds. Any payments that defeated that intention appear to be described by the IIC as 'illicit'.

5.13 'Illicit' is defined in the Macquarie Dictionary as 'not permitted or authorised; unlicensed; unlawful'. In the Shorter Oxford Dictionary, it is defined as 'not authorised or allowed; improper, irregular; not sanctioned by law, rule or custom; unlawful, forbidden'.

5.14 The process by which the various payments were made by the three Australian companies forms the factual subject matter of this Inquiry, but it is clear that in respect of the sale of goods to Iraq with which I am concerned the following applied:

5.15 In no sense can it be said that the contracts for sale of the Australian goods were 'illicit', as being 'not permitted' or 'unlicensed'. The contracts were all approved by the United Nations. Whether payments made by the Australian companies might be 'unlawful' under Australian law is the subject matter of this Inquiry.

5.16 The expressions 'kickback' and 'humanitarian kickback' were used by the IIC in a somewhat unusual way. 'Kickbacks' have been described as:

Kickbacks are payments or other types of compensation paid in order to influence and gain profit from an individual or company. Essentially, kickbacks are bribes. An individual or company uses kickbacks to gain an unearned advantage, benefit, or opportunity, even if others are more qualified or offer more competitive prices. [275]

The Macquarie Dictionary defines 'kickback' as 'any sum paid for favours received or hoped for'.

5.17 The IIC stated, however, but only in a footnote:

The term 'kickback' is used to denote an illicit payment to Iraq by a company contractor made in connection with Iraq's selection of a company to receive a contract to provide humanitarian goods under the Programme. The term 'humanitarian contract' includes contracts for all goods imported into Iraq under the Programme, and the term 'humanitarian kickback' is used as a shorthand reference to kickbacks made in connection with humanitarian contracts. It is unnecessary to determine whether the illicit payments described in this Chapter were true 'kickbacks' in the strict legal sense that this term may be used in criminal corruption laws.[276] [emphasis added]

5.18 Thus, what the IIC described as 'kickbacks' did not necessarily carry with it any implication of illegality. It was an unfortunate expression to use because it carries with it an overtone of illegality, although the IIC, as the footnote just quoted makes clear, did not intend necessarily to convey that implication.

5.19 The focus of the IIC was on manipulation of the Oil-for-Food Programme by the Iraqi Government in such a way as to enable Iraq to receive some portion of the monies held by the United Nations in the escrow account, which the United Nations intended to be used only for humanitarian purposes. Insofar as the transactions resulted in the payment of monies to Iraq or the inflation of contract prices and subsequent payment to an instrument of the Iraqi Government of a portion of the inflated price, such monies might, perhaps loosely, be described as 'kickbacks'. But that does not necessarily mean that the payment of such monies was illegal. In particular, it does not necessarily mean that payment of any such monies was contrary to any Commonwealth, State or Territory law. It is the purpose of my inquiry to determine whether any such payments as were made to Iraq or its instrumentalities, or any inflation of prices included in UN-approved contracts, might have breached Commonwealth, State or Territory law. In that I include both statute and common law.

The manner of approval of purchasing contracts

5.20 The Independent Inquiry Committee reported:

A company selling humanitarian or other civilian goods under the Programme contracted with a ministry of the Government of Iraq or, for goods intended to be distributed in northern Iraq (other than bulk purchases and oil spare parts), with one of the UN-related agencies. The goods were required to have been identified in advance on the distribution plan approved by the Secretary-General for each phase. The contract was forwarded through the company's home country mission to OIP's Contracts Processing Monitoring Division, where it was subject to review for the details of pricing and value. If the contract's paperwork was in order, the contract was then subject to the 661 Committee's review and approval under a 'no objection' procedure (i.e. the contract was deemed approved if no member of the 661 Committee lodged an objection within a prescribed time period) … Member states reviewed these contract applications to varying degrees, and, over time, the Security Council authorised OIP to approve an increasing percentage of these applications, specifically those involving humanitarian goods unlikely to trigger any dual use concerns.

Upon approval of a goods contract, the goods could be transported into Iraq. The goods were required to be certified by UN-retained border inspectors (Lloyd's from 1997 to January 1999 and Cotecna from February 1999 to 2003) at one of four main border inspection points: (1) Zakho on the border of Turkey; (2) Trebil on the border of Jordan; (3) Al-Waleed on the border of Syria; or (4) the port of Umm Qasr on the border of the Persian Gulf.

Once the goods were certified the escrow bank (BNP) paid the goods supplier from the escrow account.[277]

Direct financial transactions with the Government of Iraq or Iraqi companies

5.21 Resolution 661 required member states to prevent both the import of goods from Iraq and the export of goods to Iraq, except for humanitarian supplies. As the Independent Inquiry Committee reported:

Paragraph four of Resolution 661 barred financial transactions with 'persons or bodies within Iraq … except payments exclusively for strictly medical or humanitarian purposes and, in humanitarian circumstances, foodstuffs. [278]

…

However, Resolution 986 and the Iraq-UN [Memorandum of Understanding] explicitly required that all oil proceeds be deposited into the escrow account and that, similarly, payments for the humanitarian supplier come exclusively from the escrow account. Direct financial transactions with Iraq were not authorised under the Programme.[279]

5.22 When a question arose whether companies could pay Iraq or Iraqi entities for port charges, for example, for the use of Iraqi ports or navigational services in November 1997, the UN Office of Legal Affairs advised the 661 Committee that the payment of port charges to Iraq or Iraqi entities was permissible in connection with lawful shipping activity, so long as the 'fees and charges do not exceed what is customary in such circumstances' and the arrangements otherwise 'exclude economic or financial benefits in favour of Iraqi agencies or companies'.[280]

5.23 The IIC's final report continued:

In June 1998, OLA extended its earlier opinion on port charges to encompass the payment of inland transportation fees to Iraq (i.e., fees for transporting goods from their points of entry into Iraq to their ultimate destinations within Iraq). OLA concluded that payments of such fees would not violate the sanctions regime so long as they complied with two restrictions. First, the payments should not 'exceed what is customary and reasonable in the circumstances' and therefore 'represent a source of income to Iraq'. Rather, they should 'be limited to charges for transportation, such as road tolls, levied on a non-discriminatory basis, and to charges which are commensurate with whatever administrative expenses might reasonably be entailed by the occurrence of the transit.' Second, OLA specified that 'any charges should also be payable in Iraqi dinars only.'

… OLA's requirement that payments to Iraq be made only in dinars essentially required companies that were assessed port charges either to violate sanctions or decline to trade with Iraq. Because the Iraqi dinar was a non convertible currency (i.e., not openly traded), the only way to obtain substantial dinars was through a financial transaction with 'persons or bodies within Iraq', which Resolution 661 expressly precluded. Although the 661 Committee discussed this dilemma created by OLA's advice, it ultimately acquiesced in these illegal transactions.

In a memorandum to one of the oil overseers in June 2000, OLA reiterated its view that exporters may pay port fees to Iraq 'so long as the charges … do not exceed whatever might … be customary and reasonable and so long as they are paid in Iraqi dinars'. Significantly, however, this OLA memorandum advised also that it would be impermissible for goods suppliers to pay port charges to a Jordanian company alleged to be furnishing port services, Alia for Transportation and General Trade ('Alia'), assuming-as it appeared-that Alia was acting pursuant to an agreement with Iraq to provide such services. OLA clarified that any payment to Alia without the 661 Committee's approval would violate the sanctions regime, which otherwise barred services 'calculated to promote the import from or export to Iraq of products and commodities'. OLA underscored that it was unaware of the Government of Iraq or Alia having sought approval-let alone the 661 Committee ever having approved such an arrangement.

These restrictions were communicated by the United Nations to the Government of Iraq. In a letter dated June 27, 2000, Benon Sevan informed the Government of Iraq that payments of port fees to Iraq must be customary and reasonable in amount and made only in Iraqi dinars. In addition, Mr Sevan explained that payments to Alia required 661 Committee approval if, as it appeared, the Government of Iraq had engaged Alia to provide services in relation to the Programme.

OLA also concluded that the sanctions regime did not bar including after-sales-services in Programme contracts-subject to certain limitations as well as the 661 Committee's or OIP's approval. Although both resolution 986 and the Iraqi-UN MOU explicitly permitted Iraq to import only 'goods', OLA reasoned that this framework included 'the provision of services which are ancillary to the supply of those goods. Specifically, OLA advised OIP that services qualified as sufficiently 'ancillary' if 'considered to form part of the supply of an operational and operable product and so be instrumental to the provision, or even to be a constituent element, of the goods which are being supplied.' In OLA's view this encompassed services such as 'assembly, installation and commissioning', but not services for which the goods supplied were merely incidental. OLA further advised that no supplier should be paid for after-sales services until the independent inspection agents provided authenticated confirmation that the relevant services were rendered, and this requirement should be included in Iraq's contracts with goods suppliers. OLA never concluded that suppliers could make direct payments to the Iraqi regime in lieu of the suppliers providing the after-sales-services contained in approved Programme contracts. [281]

5.24 The IIC's report does not suggest that the advice of the Office of Legal Affairs, or the substance of its advice, was communicated to any suppliers or, indeed, to member states.

5.25 The IIC drew the following conclusion in relation to the humanitarian goods transactions and illicit payments:

In the final analysis, even though instructive to consider OLA's legal opinions, it is unnecessary to rely upon them in understanding why direct payments to the Government of Iraq-not approved by the United Nations-violated the sanctions regime. First and foremost, the relevant resolutions and procedures adopted for the Programme never envisioned direct payments to Iraq or any Iraqi-controlled entity, whether termed 'inland transportation' or 'after-sales-service' fees. Neither the Security Council nor its 661 Committee ever approved such payments outside the escrow account. Second, even accepting OLA's view that it was permissible to pay certain fees to Iraq, OLA required such payments to be reasonable and only in Iraqi dinars … The inland transportation fees were not reasonable particularly in the later phases of the Programme, when they increased beyond any true cost of transportation, and these fees were paid in USD, euros and other foreign currency; similarly, after-sales-service fees were paid without any justification in terms of corresponding costs incurred by Iraq and were paid in USD, euros and other foreign currency. In any event … it would have been impossible for companies to pay Iraq in dinars without first violating the sanctions regime. Third, no company has suggested that it relied upon OLA's advice that certain payments were permissible under the sanctions regime and the Programme's rules. Fourth, with regard to payments made by suppliers to companies such as Alia, the Government of Iraq never sought the 661 Committee's approval, even after receiving OIP's letter of June 27, 2000. Accordingly, the types of financial transactions to be discussed in this Chapter involving land transportation and after-sales-service fees were impermissible under the rules governing the Programme. [282]

The Government of Iraq's purchasing structure

5.26 According to the Independent Inquiry Committee's final report, the Government of Iraq's purchases under the UN Oil-For-Food Programme were organised in a hierarchical structure.[283] At the peak was the Supreme Command Council, which oversaw Iraq's purchases of humanitarian goods. It sat above the Leading Committee, which oversaw allocation of program funds to Iraqi ministries. Beneath the Leading Committee were three committees: the Import Committee, the Technical Committee and the Economic Affairs Committee. According to the report, the Import Committee's function was to supervise ministry expenditures, track the execution of contracts, and account for after-sales-service fees. The function of the Technical Committee was to prepare the distribution plan for each phase and review the technical specifications of individual contracts. The Economic Affairs Committee was a subsidiary of the Iraqi Council of Ministers and helped to formulate the Iraqi regime's methods and rates of collecting kickbacks.

5.27 Beneath these three committees were state-owned enterprises, one of them being the Iraqi Grain Board. The role of SOEs was to purchase goods for their respective ministries, coordinate tenders, negotiate with suppliers and sign contracts that were to be submitted to the United Nations.

5.28 The IIC's final report stated:

Contracting under the Programme worked in the following manner: at the beginning of each phase, SOEs would advertise tenders for contracts consistent with the specifications of the distribution plan. Once bids had been received, they were assessed and forwarded to ministerial committees for further evaluation. Selected applicants were then invited to negotiate in Baghdad. Following approval by Iraqi authorities, the Central Bank of Iraq would request that BNP New York issue a letter of credit in favour of the supplier. [284]

5.29 As described in Chapter 1, the Oil-for-Food Programme was organised into numbered phases. Each phase required a plan of distribution for the purchased goods, and the plan was required to be approved, and was approved, by the United Nations. It was after such approval that contracts for the purchase of humanitarian goods were negotiated. According to the IIC's final report, 'Phases I to V were before the official introduction of the regime's kickback policies during Phases VI-VII, when the inland transportation fees were introduced, and Phases VIII-XIII, which were subject to the broadening of the kickback scheme'.[285]

5.30 The IIC noted:

Goods imported via Umm Qasr were all transported by vessel and subsequently trucked inland …

In most contracts for the provision of goods, the unit price negotiated between the supplier and Iraq encompassed the cost of the procured commodity and also specified transportation expenses and related insurance fees. This combination of cost, insurance, and freight was denoted by the standard trade acronym: 'CIF'. Thus, a contract for the supply of 60,000 metric tons of rice to Iraq at a rate of 'CIF $310.00 per metric ton' reflected not just the value of the rice itself, but also the cost of transporting that rice to a destination mutually agreeable to Iraq and the supplier. The exact values of these inland transportation costs were added to bids submitted by prospective suppliers to Iraqi contracting bodies, but were not quantified explicitly in the contracts submitted to the United Nations.

Vessels berthing at Umm Qasr required the approval of the Iraqi State Company for Water Transport ('ISCWT') before being permitted to discharge. ISCWT was one of over a dozen SOEs overseen by the Ministry of Transportation and Communication ('Ministry of Transportation'). Under Iraqi law, ISCWT had exclusive authority for all activity at Iraqi ports. Its official function was to arrange and authorize the unloading of cargo and to act as a marine agent for ships carrying procured goods. In addition, it represented to the United Nations that it coordinated transport to internal warehouses and informed Iraqi end-users of inbound goods. However, ISCWT employees did not themselves actually participate in the discharge and handling of cargoes. The Iraqi State Company for Ports, another SOE within the Ministry of Transportation, assumed that responsibility. [286]

Inland transportation costs

5.31 The Independent Inquiry Committee's final report stated:

Neither the Iraq-UN MOU, Resolution 986, nor any subsequent Security Council resolutions specified how goods procured by Iraq were to be transported beyond the designated entry points. Starting in Phase VI, however, Iraq frequently asked suppliers shipping to Umm Qasr to bear responsibility for internal transportation.

According to Iraqi officials interviewed by the Committee, Iraqi authorities ordinarily permitted trucks carrying goods across land borders to continue to Baghdad or to the requested drop-site. By contrast, private entities-apart from a small number of local Iraqi firms-were not allowed to transport goods discharged at Umm Qasr to locations inside Iraq. Through subsidiary SOEs, either the Ministry of Transportation or the Ministry of Trade administered the trucking of these cargoes to internal warehouses. Two Ministry of Transportation SOEs were involved directly in inland transportation: ISCWT and the Iraqi State Company for Land Transportation ('Land Transport'). The majority of transportation provided by the Ministry of Trade was executed by IGB, an SOE responsible for purchasing wheat, rice and other essential foodstuffs. No other bodies of the Government of Iraq had trucking fleets capable of providing services of this nature.

Contracts for humanitarian goods signed during Phases I through V of the Programme reflect the division of transportation responsibilities between goods suppliers and the Government of Iraq … contracts specifying the delivery of goods to Umm Qasr included unit prices with the designation 'CIF Free out Umm Qasr,' 'CIF Free on board,' or 'CIF Free on truck.' Under these provisions, the supplier was required to finance directly and arrange sea freight to Iraq, but was not responsible for internal transportation. In such cases, Iraq itself bore the costs of inland transportation.[287]

Introduction of mandatory transportation charges

5.32 The Independent Inquiry Committee's final report stated:

On June 10, 1999 (Phase VI), the Iraqi Economic Affairs Committee issued a directive ordering ministries to impose non-negotiable 'transportation fees' on all goods requiring inland delivery by Iraqi trucks. This tariff was levied on all cargoes delivered to Umm Qasr and sometimes on cargoes shipped overland to Iraq. The Economic Affairs Committee set these fees depending on the kind of goods being transported, the form of packaging, the point of entry into Iraq, and the phase in which the contract was signed. The fees were payable to designated Iraqi entities and regime-controlled front companies. Although the Ministry of Transportation oversaw the collection of these funds, a fee schedule was circulated to all Iraqi ministries at the beginning of each phase.[288]

…

Significantly, Iraq did not request that suppliers pay this tariff at their own expense. Rather, Iraq incorporated the cost of paying transportation fees into the contracts it signed with suppliers, which were funded from the escrow account. According to suppliers and Iraqi officials interviewed by the Committee, contract negotiations after the imposition of transportation fees normally followed the following sequence: As an initial matter, the purchasing body of the Government of Iraq and the supplier negotiated a unit price, inclusive of insurance and transportation to Iraq, for the commodity being procured. Once a mutually acceptable price had been reached, the purchasing body informed the supplier of the internal transportation fees it would be required to 'pay' directly to Iraq in connection with the contract. If the supplier agreed to these terms, the previously negotiated unit price was increased in accordance with the rates dictated by the Economic Affairs Committee. This revised unit price was included in the final version of the contract signed between the purchasing body and the supplier and submitted to the United Nations for approval and funding from the escrow account.

Following contract approval, an Iraqi entity responsible for the collection of payments contacted the supplier and informed it of the exact amount owed and the designated payment mechanism. Once this entity had confirmed that the supplier had paid, the supplier's goods were permitted to enter Iraq. In this manner, through contractors under the Programme, Iraq illicitly obtained escrow funds, which it could use for its own purposes. The only disadvantage to suppliers under this scheme lay in the timing of contract execution: Because funds were not released from the escrow account until after an inspection agent had authenticated the arrival of goods at the Iraqi border, suppliers typically were obligated to remit transportation fees in advance of their payment by the United Nations.

Over the course of the Programme, contracts signed between Iraq and suppliers increasingly reflected this scheme by specifying the final destination of 'CIF all Iraqi Governates' or 'CIF Baghdad.' This imposed an obligation on the seller to pay for transportation services inside Iraq after its goods had been discharged at Umm Qasr. The specific means by which this internal transportation would be effected were only rarely included in United Nations contracts and, despite occasional discussions and inquiries regarding inland transportation payment, neither the Secretariat nor the 661 Committee ever considered closely whether current arrangements violated the sanctions regime-even as interpreted by OLA.

Sales agents interviewed by the Committee stated that they were aware of the requirement to pay inland transportation fees to Iraqi government agencies. [289]

Payment mechanisms for internal transportation fees

5.33 The Independent Inquiry Committee's final report stated:

As noted above, when introducing inland transportation fees, the Economic Affairs Committee charged ISCWT with collecting funds derived from this tariff. In practice, fees could be paid in four ways: (1) in cash to an ISCWT representative at Umm Qasr or in Baghdad; (2) in cash to the Rashid Bank or Rafidain Bank in Baghdad; (3) by bank transfer to the ISCWT account at the Amman Branch of Rafidain Bank; or (4) by bank transfer to accounts held by front companies in Jordan or the United Arab Emirates. The Iraqi regime did not favour one particular mechanism. However, because large volumes of cash were difficult and dangerous to transport and suppliers were hesitant to make bank transfers directly to Iraqi authorities, payments through front companies became the preferred method of many suppliers. In some instances, private agents (rather than front companies) facilitated payments to ISCWT's account.

Normally, either the purchasing body of the Government of Iraq or ISCWT informed the supplier which front company to use in connection with a particular contract. When the Iraqi regime introduced the illicit inland transportation scheme, Alia and Amman Shipping, both based in Amman, Jordan, were two of the most frequently used front companies. These companies posed as legitimate providers of transportation services from the port of Umm Qasr, but in practice provided only limited services at port and otherwise functioned as little more than conduits for the payment of transportation fees to ISCWT. In exchange, the companies received a small percentage of the fees they channelled to the regime.

…

All money paid by front companies or suppliers into ISCWT's account at the Amman branch of Rafidain Bank was transferred promptly into the company's account at the Baghdad branch of the same bank. Upon receipt of these funds, Rafidain Bank Baghdad would notify ISCWT. In addition, the front companies themselves would inform ISCWT that a supplier had fulfilled its obligations.

If ISCWT had not received confirmation of a supplier having paid into an Iraqi-controlled bank account, it generally would not permit discharge of the supplier's cargo. In such circumstances, the supplier or vessel chartering company incurred demurrage of thousands of dollars a day. [290]

Distribution of internal transportation fees

5.34 The Independent Inquiry Committee's final report stated:

… Iraqi representatives initially presented inland transportation fees to suppliers as necessary to fund actual costs. However, this is belied by recent admissions of Iraqi officials familiar with the inland transportation scheme as well as by documentary evidence obtained in this investigation. When interviewed, officials explained that the transportation fees were unusually high and included a generous margin of profit that was transferred to accounts held by the Iraqi Ministry of Finance or CBI. In particular, former Minister of Oil Rashid noted that the inland transportation fees were introduced to generate supplemental cash and did not relate to internal costs. [291]

5.35 The IIC also relied on internal Government of Iraq documents obtained after the fall of Saddam Hussein's regime. These documents are said to show allocations of the fees received for inland transport between land transport, port costs, insurance and 'finance'. The documents have been interpreted to mean that the money paid to finance was profit that was available for use by the regime.[292]

The broadening of the kickback scheme

5.36 The Independent Inquiry Committee's final report stated:

Approximately one year after the Iraqi regime began requiring certain contractors to pay transportation fees to ministerial entities and front companies, it expanded its kickback program to include a mandatory 'after-sale-service fee'. This new tariff, which in most instances was eventually equal to ten percent of the original contract value, applied to all goods purchased by each ministry, regardless of point of entry into Iraq or means of transportation. This obligation was enforced through the final phase of the Programme, often in conjunction with other fees, and had earned the regime more than $1 billion by spring of 2003. [293]

Introduction of after-sales service fees

5.37 The Independent Inquiry Committee's final report stated:

On August 3, 2000, two months after the start of Phase VIII, Vice President Ramadan circulated a memorandum to all Iraqi ministries that described a recent meeting of the Command Council. The memorandum stated that the Command Council had … decided on the following directives:

1 Gather all commercial contracts titled ((After Sales Services or any other suitable version that achieves the purpose of the contract and is based on the nature of that contract)).

2. The allocated percentage for bullet (1) above will be as follows:

(a) From 2-5% for food and medication (excluding medical tools and equipment)

(b) From 5-10% for everything but food and medication.

3. The delegated minister and the head of the entity not related to a ministry are authorized to determine the rate amount in bullet (2) above, based on the nature of the materials that are under contract and at the highest rate whenever possible.

These instructions signalled the imposition of after-sales-service fees, a mandatory kickback to be paid by all suppliers to Iraq. Unlike transportation fees, which were levied based on the weight or size of the procured commodity, after-sales-service fees constituted a fixed percentage of the monetary value of the goods under purchase. This percentage, which was initially suggested at two to five percent for food and medicine and five to ten percent for all other items, could be raised or lowered at the discretion of the minister overseeing the contract in question. In October 2000, the Command Council raised the minimum percentage to ten percent, noting that any after-sales-service fees above this threshold would be viewed as 'commendable'. From this point forward, ten percent was the standard amount levied, but in some instances fees could be as high as thirty percent.

…

As had been the case with transportation fees, Iraq incorporated after-sales-service fees into the contract value that was paid to the supplier out of the escrow account. Accordingly, contract negotiation after the imposition of after-sales-service fees operated in much the same way it had during the period when only transportation fees applied. Iraqi officials across a number of ministries have explained that suppliers were informed or reminded of their obligation to pay the additional percentage after they had participated in a tender process and been selected by a purchasing body to contract under the Programme. If a supplier agreed to these terms, its contract value would be inflated by the percentage demanded by the contracting ministry. Often this upward revision was accomplished by increasing the unit price, but in may instances an explicit after-sales-service fee equal to the levied amount was inserted in the contract. In other instances, the fee was disguised as a performance bond or a maintenance or training expense.

Suppliers initially could pay after-sales-service fees in one lump sum or in instalments corresponding with individual shipments or deliveries of goods. In most cases, these payments had to be executed before the goods in question reached the Iraqi border. Otherwise, ISCWT (for deliveries to Umm Qasr) or ministry officials (for land deliveries) would not permit the goods to be discharged at port or unloaded at warehouses. Certain contractors that Iraqi authorities viewed as reliable were permitted to make payments after goods had arrived in Iraq and funds had been released from the escrow account.[294]

Expansion of the transportation fee scheme

5.38 The Independent Inquiry Committee's final report stated:

In the same August 2000 memorandum that announced the inauguration of after-sales-service fees, Vice President Ramadan imparted new instructions to the Ministry of Transportation regarding transportation fees. Three days after this announcement, the Economic Affairs Committee circulated a new schedule of transportation fees, raising fees on all goods imported via Umm Qasr for the remainder of Phase VIII. Rates remained at or slightly above these levels for the Programme's duration. As noted above, most of the additional revenues afforded by this augmented tariff were transferred to the Ministry of Finance's account at CBI following collection by ISCWT.

Five months later, Deputy Prime Minister Al-Azzawi distributed a memorandum informing all Iraqi ministries about the mechanisms for paying after-sales-service fees. This memorandum specified that ISCWT was 'in charge of receiving the revenues from after sales services … in addition to additional and original transportation fees for goods imported via Umm Qasr port…' The memorandum specified also that ISCWT must 'transfer the revenues from the after-sales services arriving in its account to the accounts of Ministries and departments not affiliated with a Ministry …'

Taken together, these directives reflect the expansion of the inland transportation scheme in the months following the imposition of after-sales-service fees. According to Iraqi officials, in addition to receiving inland transportation fees, ISCWT was also responsible for ensuring the collection of after-sales-service fees levied on goods delivered to Umm Qasr port. These two fees were often collapsed into one very high transportation fee and paid by the same methods that had been used in Phases VI and VII. As a result, payments to ISCWT and to companies such as Alia and Amman Shipping increased dramatically between 2000 and 2002.

…

The funds received from transportation fees, meanwhile, were distributed in a manner generally consistent with the framework for Phase VIII set out in the ISCWT Table. In the case of bulk goods, for example, this amounted to approximately $9 pmt to Land Transport, $10 pmt or more to the Ministry of Finance as a cash reserve, and $0.25 pmt to $3 pmt for other entities that provided port services. [295]

Payment mechanisms for after-sales service fees

5.39 The Independent Inquiry Committee's final report stated:

Fees could be paid by several methods: (1) cash payments (in Baghdad or at embassies in foreign capitals); (2) bank transfers; and (3) front companies. There were no set guidelines specifying when a particular payment mechanism was to be employed. In practice, this choice appears to have been at the discretion of the purchasing body or the supplier. Because some companies complained about having to pay illicit fees before receiving funds from the escrow account, the Government of Iraq permitted certain suppliers to obtain bank guarantees instead and then pay their kickbacks after obtaining payment for the goods sold to Iraq. [296]

Front companies

5.40 The Independent Inquiry Committee's final report stated:

Firms desiring to avoid paying to bridge accounts or other CBI-controlled accounts could deposit after-sales-service fees into accounts held by front companies located in Egypt, Lebanon, and the United Arab Emirates. Funds paid to front companies were transferred to bridge accounts in Lebanon and Jordan and then to CBI accounts at Rafidain Bank in Amman. Some of these front companies were owned partially by the Government of Iraq, whereas others had no relation to it. [297]

Alia for Transportation and General Trade

5.41 The Independent Inquiry Committee's final report stated:

Alia was established in August 1994 as a joint venture between Hussain Al-Khawam, an Iraqi businessman, and Iraqi Ministry of Transportation. This arrangement developed from a proposal by Mr Al-Khawam to refurbish Iraqi vessels stranded off the coast of Jordan and to use them for commercial shipping. At the time of Alia's registration, Jordanian law required that at least one owner of a Jordan-registered company be a Jordanian national. As a result Mr Al-Khawan nominated a close associate, Mo'tasset Fawzy Qatishat, to hold fifty-one percent of the company's shares on Mr Al-Khawam's behalf. The Iraqi Ministry of Transportation assigned two of its employees to hold Alia's remaining shares.

In 1999, the Ministry of Transportation arranged with Alia to have it act as ISCWT's collection agent for suppliers' payments for the inland transportation of goods arriving at the port of Umm Qasr. As collection agent, Alia received a small commission on the funds it channelled from suppliers to ISCWT. According to bank records, Alia began receiving fees from suppliers as early as March 2000.

The agent arrangement with Alia was useful to the Government of Iraq … Alia violated and assisted in violating the United Nations sanctions regime, which prohibited any third party from engaging in financial transactions with the Government of Iraq except as permitted under the Programme or Security Council resolutions. By arranging for suppliers to make illicit payments to a Jordanian company such as Alia-instead of directly to ISCWT or another government entity of Iraq-the Iraqi regime disguised the illicit nature of such payments.

In fact, all transportation services for which Alia received payment from humanitarian suppliers were provided by employees of the Government of Iraq. Transport of goods arriving at Umm Qasr was provided by trucks from the Ministry of Transportation or the Iraqi Grain Board ('IGB') …

Following the conclusion of contract negotiations between an Iraqi purchasing body and a supplier, ISCWT contacted Alia by fax, letter, or telephone and informed Alia of the amount that was to be received from the supplier. On some occasions, ISCWT contacted the supplier directly to advise the supplier that it should send payments to Alia or sent the same invoice to the supplier that it sent to Alia. On other occasions, Alia sent invoices to suppliers indicating the amounts levied by ISCWT. Representatives of ISCWT came to Alia's office every month to inspect the company's records, and ISCWT also sent an employee to work at Alia.

Suppliers paid their fees in various foreign currencies (not Iraqi dinars) to Alia's accounts at Jordan National Bank and the Egyptian Arab Land Bank. Upon receipt of the funds, Alia informed ISCWT of the amount of the transfer and the corresponding supplier, contract, ship, and letter of credit …

Shortly after sending such communication, Alia transferred the full payment amount (less a commission between one-quarter percent and one percent) to ISCWT's account at Rafidain Bank in Amman …[298]

5.42 In relation to Alia, the report concluded:

In summary, based on the available evidence, Alia knowingly acted as a front company, serving as a conduit for collecting hundreds of millions of dollars in illicit fees paid by suppliers to the Iraqi regime … [299]

5.43 On 8 October 2005 Alia wrote to Counsel for the IIC. The letter, which was included in the final report, stated:

1. The General Agency Agreement with the Iraqi Company For Water Transport in Jordan stipulates and empowers our company (Alia For Transportation and General Trade) to receive the amounts of ocean transport freight charges realised by the aforesaid company's operating vessels or any other amounts involved and have some transferred to Iraqi Company For Transport which represent only a small portion of the shipping agency activities.

2. Our company acts as an Agent for the Iraqi Overland transport company in accordance with an appropriate Agency Agreement likewise, our company maintains the General Sales Agent of Iraqi Airways.

3. As a matter of fact, our company owns several Sea-going vessels and Aircraft as well as a fleet of road trailers. Moreover, we are actively involved in exceptionally large commercial business transactions. All these business activities were and are still being conducted outside the frame work of what you consider a frontal company. [300]

The final report's findings in relation to AWB

5.44 Following are the Independent Inquiry Committee's findings in relation to AWB:

AWB was established in 1939 as the Australian Wheat Board. Between its founding and 1999, the Australian Wheat Board functioned as a statutory body of the Government of Australia to control the domestic and export marketing of Australian wheat. By July 1999, Australia enacted legislation to transfer control of the Australian Wheat Board to a grower-owned corporate group of companies. In August 2001, AWB Ltd. was placed on the Australian Stock Exchange as a publicly traded company. AWB Ltd. is the exclusive manager and marketer of all Australian bulk wheat exports through a supply pooling system arrangement with Australian wheat growers.

According to AWB, it has sold wheat to Iraq continuously since 1948. It was the single largest provider of humanitarian goods to Iraq under the Programme and participated in all thirteen phases of the Programme from 1997 to 2003-selling a total of 6.8 million tons of wheat to Iraq and receiving a total of over $2.3 billion in payments from the United Nations escrow account. During each Programme phase, AWB negotiated several contracts with IGB for up to several hundred thousand metric tons of wheat per contract; each contract ordinarily required up to ten or more individual shipments in ocean freighters from Australia to Iraq's port of Umm Qasr.

For the first five phases of the Programme, AWB's contracts with IGB required shipment of its wheat only up to the point of entry to Iraq. In July 1999, however, AWB and IGB agreed to a new contractual term requiring AWB to assume the cost of inland transportation to points within Iraq from the port of Umm Qasr. The new contract term provided: 'CIF Free on Truck to Silo All Governorates via Umm Qasr Port.' According to AWB, this amended provision was proposed by IGB. The 'inland transportation' provision became standard in all AWB contracts for the remainder of the Programme.

AWB did not have its own trucking fleet in Iraq. And … goods suppliers such as AWB could not directly pay the Government of Iraq or an Iraqi company for the costs of inland transportation without violating United Nations sanctions and the Programme's rules, which allowed financial transactions with the government and Iraqi entities only through the United Nations escrow account.

… AWB paid its inland transportation fees to Alia Transportation of Jordan. Moreover … Alia was owned partly by Iraq's Ministry of Transportation and acted as a collection agent for the Government of Iraq's inland transportation payments from certain humanitarian goods suppliers. Transportation of goods from Umm Qasr to inland destinations in fact was provided by Iraqi government employees, not by Alia, and AWB's payments to Alia were tantamount to payments to the Government of Iraq for nominally the provision of inland transportation services.

A more extended discussion of AWB's activities is warranted because of the size of AWB's participation in the Programme and the considerable complexity surrounding AWB's understanding of the nature and disposition of its payments to Alia. The following discussion first describes the payments AWB made to Alia. It then reviews the evidence concerning the extent to which AWB was advised of Alia's relationship to the Iraqi regime and whether AWB was aware that payments to Alia were being channelled to the regime.[301]

AWB's payments to Alia

AWB paid transportation fees to Alia from December 1999 through the remainder of the Programme. In connection with AWB's first three contracts from late 1999 to mid-2000, transport costs ranged between $10.80 and $12 per metric ton ('pmt'). The rates rose to between $14 and $15 pmt in 2000, and then sharply increased for contracts from 2001 to the spring of 2003 to between $45 and $56 pmt.

This steep increase in inland transportation fees coincided with the expansion of Iraq's humanitarian kickback policies in the second half of 2000. For example, AWB paid a rate of approximately $14 pmt for the wheat shipped on a contract executed in July 2000. From August to November 2000 … Iraq increased its demands for kickbacks from suppliers in accordance with official memoranda issued from high-level Iraqi officials to all ministries. After these policy changes went into effect, AWB's next contract with Iraq was signed in November 2000. For this contract, the transportation fees that AWB paid more than doubled what was previously charged.

When interviewed, Iraq's former Minister of Trade recalled that AWB paid after-sales-service fees on all contracts where such fees had been levied … Iraq's imposition of kickbacks in the form of after-sales-service fees often were incorporated into pre-existing transportation fees, leading to large increases in the inland transportation costs that ISCWT and its front companies demanded in 2001 and 2002. Records from the Ministry of Transportation relating to the distribution of funds received by Alia indicate that AWB's remittances to Alia in fact did contain an after-sales-services component. One example of such records [is] an accounting receipt relating to funds paid by AWB for the transportation of wheat delivered to Umm Qasr by the vessel Bei Hai … In light of evidence indicating that the actual transportation fees levied by the Ministry of Transportation remained constant at $25 pmt, the after-sales-service component of AWB's payments to Alia appears to have ranged from $20 to $31 pmt.

AWB did not advise the United Nations that it was making payments to Alia for inland transportation costs. When the costs of inland transportation were included first in AWB's contracts during Phase VI, the first several contracts submitted for United Nations review and approval advised that payments of 'discharge costs' up to $12 pmt would be paid to unnamed 'Maritime Agents'. For contracts from Phase VII and afterwards, AWB did not disclose the payment of any "Maritime Agents." Nor was there disclosure of the amount of such payments, even as the proportion of contract price attributable to transportation fees increased over time.

In total, AWB paid a total of over $221.7 million in side payments for what it termed inland transportation fees. This corresponds to more than fourteen percent of the illicit funds collected by the Iraqi regime under its kickback schemes.

Knowledge of AWB employees

Little doubt remains that AWB made large numbers of payments to Alia, and these payments in turn were channelled to the Iraqi regime. A closer question, however, concerns the knowledge of AWB employees about Alia's relationship with the Iraqi regime and Alia's practice of remitting funds to the Government of Iraq. On the one hand, AWB has advised the Committee that it believed that Alia was providing actual transportation services. AWB states that it did not know that Alia was owned partially by the Government of Iraq or that payments by AWB to Alia were channelled to the Government of Iraq.

AWB's claims are supported in part by written correspondence from Alia to AWB in which Alia characterized itself as a company providing transportation services in Iraq. For example, on October 20, 1999, Alia wrote a letter of introduction to AWB advising that it was a Jordanian company that specialized in land transportation, that it was an agent of the Government of Iraq, and that it could 'offer our services on the field of transport form sic Um Qaser sic port in Basrah to the other governorate[s] in Iraq.'

In October 2000, AWB wrote to the Australian Department of Foreign Affairs and Trade ('DFAT'), noting that 'Jordan based trucking companies are responsible for arranging trucks at [the] discharge port' and that it wished to enter into a 'commercial arrangement' with 'the Jordan trucking companies' to 'ensure that there are enough trucks to enable the prompt discharge of Australian wheat cargoes.' An official of DFAT replied that it could see 'no reason from an international legal perspective' why AWB could not enter into an agreement with a Jordan-based company.

The Committee asked Alia's owner (Hussain Al-Khawam) and its general manager (Othman Al-Absi) whether they had disclosed the true nature of Alia and its activities to AWB. Mr Al-Absi thought that AWB knew that Alia did not provide actual transportation services at Umm Qasr, but did not claim that he spoke to AWB about this issue. To the contrary, Mr Al-Absi recalled that AWB staff inquired at the outset of the two companies' relationship about Alia's operations in great detail, including its experience, the types of vehicles it used, and Alia's capacity to transport large quantities of wheat. He further recalled that AWB asked the Jordanian government whether Alia was a legitimate shipping company. Both Mr Al-Khawam and Mr Al-Absi stated that Alia did not advise AWB of its partial ownership by Iraq's Ministry of Trade.

In light of these facts, the evidence does not suffice to conclude that AWB had actual knowledge of Alia's partial ownership by the Government of Iraq, that it had actual knowledge of the fact that Alia did not actually perform trucking services for AWB's wheat, or that it had actual knowledge of the fact that Alia remitted the payments it received from AWB to the Government of Iraq. On the other hand, as discussed in detail below, numerous documentary and circumstantial warning signs placed at least some employees of AWB on notice that payments to Alia may have been illicitly funding the Iraqi regime.

First, the relationship between AWB and Alia bore little resemblance to an ordinary arms-length commercial relationship. AWB did not select Alia in the first place to provide transportation services. Instead, as AWB has acknowledged, 'it was the [Iraq Grain Board] that selected Alia to provide those services.' Moreover, AWB simply made the requested payments to Alia according to a non-negotiated fee schedule that was issued to AWB each phase. As AWB has acknowledged, 'AWB did not initiate discussions for or negotiate a contract with Alia concerning the provision by Alia of inland transport services,' and 'AWB did not negotiate with Alia either the inland transport services or the fees for those services.'

In view of the sharp increases in transport prices and AWB's overall commitment of more than $200 million to Alia, it is difficult to understand AWB's failure to enter into a formal contract with Alia or to engage in meaningful negotiations with Alia concerning the price and terms of services that Alia provided. AWB has stated that it did not contest the sharp price increases because the change was 'revenue neutral' for AWB-it could be incorporated into the price charged and recovered from the escrow account. Yet, although AWB may not have had a pecuniary interest in challenging the price increases, it was aware of the increases and, with knowledge that the Government of Iraq has chosen Alia as transporter, thereby alerted to the prospect that these sudden increases would benefit the Iraqi regime.

Second, AWB was aware that the price for Alia's transport services was determined by the Government of Iraq, not by Alia. Michael Long, who served from November 2001 as AWB's General Manager for International Sales and Marketing, explained that he knew that Iraq's Ministry of Transportation set the price for Alia's inland transportation charges. He stated that he was informed of the transport price during visits to the Ministry of Transportation. This role of the Ministry of Transportation in settling the price that Alia charged should have alerted AWB to the probability that the Ministry of Transportation derived some benefit from AWB's payment for transportation fees to Alia.

Third, apart from the letters of Alia to AWB suggesting that it was in the business of providing transport services, a review of documents made available by AWB to the Committee did not disclose further documentation describing logistical details of trucking services rendered by Alia. In particular, the Committee did not come across communications describing the type of logistical challenges that ordinarily would arise in the course of efforts to transport millions of tons of wheat through the countryside.

Fourth, AWB received many documents from Alia and the Government of Iraq suggesting the likelihood that payments made by AWB were made to or for the benefit of ISCWT … Although AWB notes that many of these documents are written in awkward phrasing by non-native-English speakers, it does not appear that AWB took steps at the time of receiving these documents to investigate or clarify any ambiguous language, notwithstanding the concerns that the document should have raised.

One early example of such correspondence is a fax in November 1999 from Alia to AWB reporting a complaint from ISCWT that AWB had not yet paid its inland transportation charge.

The fact that ISCWT was complaining about non-payment of fees by AWB clearly suggests AWB's awareness that the Government of Iraq was privy to its specific payments and arrangements with Alia and that the Government of Iraq possibly was the actual beneficiary of those payments. Moreover, the fax states that funds were to be remitted to IGB and/or ISCWT through Alia. When asked to comment on this document, AWB stated it had not considered it unusual 'to find ISCWT (as port and vessel agent) taking a genuine interest in whether trucking fees had been paid to Alia.' AWB also noted that it was not surprising that a liaison would be required between Alia, the IGB and ISCWT in light of their respective roles as 'buyer', 'ports and vessels agent', and 'supplier of trucks' into which wheat was discharged.

Another example of such correspondence is a fax sent in October 2001 from Alia to AWB in which Alia warned AWB that '[y]ou are totally aware of the instructions issued by the ISCWT to pay the inland transportation charges (5) days before vessel[s] arrive to the port' and stating that Alia customarily 'notif[ied] the ISCWT that we have received the inland transportation charges for AWB's vessels … before actually receiving the funds in our account'. When asked to comment on this document, AWB stated the arrangements it described were 'in line with the agreement made between AWB and IGB,' which required the payment of trucking fees to Alia in advance of the discharging of wheat at Umm Qasr.

In September 2002, apparently in light of AWB's failure to make a timely payment for a shipment that had arrived in port, Alia sent a fax marked 'URGENT' to AWB warning that 'ISCWT informed us that you should credit their account with the amount of Euro 203,303 immediately today otherwise they will stop the discharging of vessel and would not permit it to leave the harbour until money is received.'

AWB responded in an e-mail assuring Alia that 'AWB Limited has remitted all inland transport payments for vessels currently discharging at Umm Qasr.' AWB's reply did not otherwise comment on the asserted role of ISCWT. In a reply e-mail, Alia specified that AWB should confirm that it would send the fee to Alia so 'we can notify the ISCWT that we have received the amount of 203,303 Euro, & the discharge will continue for they have decided to stop the discharge & hold the vessel by the end of today's work.'

This exchange of correspondence again suggests that AWB was placed on notice of ISCWT's pecuniary interest in payments made by AWB. When asked about this exchange of correspondence, AWB stated that it was uncertain why Alia had referred to the transfer of funds to ISCWT's account, further adding that AWB at no point had transferred funds to that account.

In addition to the foregoing communications between Alia and AWB, the files of AWB also contain messages from ISCWT on the subject of transportation fees. In particular, AWB was copied on numerous invoices sent by ISCWT to Alia that related to the collection of transportation fees on AWB's contracts. These invoices notified Alia of future shipments of wheat and instructed the company to 'coordinate' with AWB and 'arrange for to pay the private sector cost of inland transportation.' Many of the invoices received by AWB were printed on Ministry of Transportation letterhead and signed by a senior ISCWT officer. None of the invoices indicated that Alia actually was expected to provide or arrange inland transportation services. One example of such a document is set forth below:

AWB has not commented specifically on the invoices it received from ISCWT. It has stated repeatedly, however, that IGB informed it of the transportation fees levied on each of its contracts and that these fees were to be paid to Alia in exchange for actual trucking services.

AWB's correspondence with IGB indicates that AWB routinely informed IGB of the timing and details of its transportation fee payments to Alia. In February 2001, for example, AWB faxed a message to the Director of IGB that discussed a recent sale of 500,000 tons of wheat to Iraq and noted in part that 'AWB will pay USD14.00 PMT in equivalent agreed currency for partial payment of transportation fee prior to the vessel arriving from Umm Qasr', and that the '[b]alance of USD31.00 PMT will be paid as final payment of transport fee within 1 week of receipt of UN payment being received by sellers.'

AWB sent IGB other faxes describing its payment or intended payment of transportation fees to Alia. One of these faxes noted that 'an updated payment schedule for inland transport payments' executed in connection with two of AWB's contracts was attached. Another fax included 'a copy of the latest payment situation from the UN to AWB Ltd and from AWB Ltd to Alia Transport Co.' A third fax requested IGB to 'advise' ISCWT about adjustments to inland transportation payments on rejected vessels. This fax also noted that the 'procedure' for transportation payments involved a remittance to Alia. These documents again suggest AWB's awareness of the Government of Iraq's high degree of interest in AWB's payment to Alia.

IGB occasionally reminded AWB of its obligation to pay transportation fees. In May 2002, for example, IGB sent a telex to AWB instructing it to 'contact Alia' in order to 'transfer total amount of inland transport charges' for cargoes specified in an e-mail that AWB had sent to ISCWT. IGB noted that, once these payments had been made, AWB's ships would be permitted to discharge.

Another AWB document reflects a communication from one AWB employee to another AWB employee reporting that IGB was 'looking for' inland transportation fees:

In addition to the foregoing documents from AWB, Alia has provided the Committee with a copy of a telex that it received from a former AWB employee in Baghdad. In this telex, the AWB employee complained that AWB did not wish 'to be threatened to stop vessel[s] from sailing unless trucking fees received' and warned that 'any discussion/message concerning trucking and trucking fees should be sent only repeat only from your office in Jordan to myself or Mark Emons [another AWB employee] home fax-not by telex to AWB office and not from Basrah.' The AWB employee also noted in the telex that he would send Alia 'wording of 7 letters to cover trucking fees', and that he would send this 'wording' from his home fax and Alia should reply to the same coordinates. Mr Al-Absi of Alia stated that he could not recall the reasons for AWB sending this telex.

The Committee does not have evidence to indicate that the documents discussed above were transmitted to AWB's senior management personnel. Nevertheless, when AWB representatives met with the Committee, they acknowledged that these documents raised at least 'debatable' questions about whether AWB employees should have known that AWB's payments to Alia were channelled to the Government of Iraq.

In summary, based on the available evidence, AWB paid to Alia over $221.7 million for what it termed inland transport or trucking fees. These payments were channelled to the Government of Iraq by Alia. Both AWB and Alia deny that AWB knew of Iraq's partial ownership of Alia, and there is no evidence to contradict these denials. AWB also denies knowing that Alia did not actually transport its wheat from Umm Qasr and that Alia remitted the money paid by AWB to the Government of Iraq. On the one hand, there is no evidence that Alia told AWB that it was not performing transport services for AWB's wheat or that it was channelling AWB's payments to the Government of Iraq. On the other hand, numerous aspects of the AWB-Alia relationship, as well as the nature of many of the documents received by AWB … suggest that some employees of AWB were placed on notice of facts strongly suggesting that AWB's payments were in whole or in part for the benefit of the Government of Iraq. Of particular significance is the degree to which Alia's trucking prices rose sharply beyond what would apparently be a reasonable transportation fee and without other apparent justification. Such increases, in conjunction with AWB's knowledge that Alia had been nominated in the first place by the Government of Iraq, should have signaled AWB officials to the probability that the Government of Iraq stood to illicitly benefit financially from AWB's payments to Alia. In addition, IGB and ISCWT initiated or were party to communications concerning AWB's payment of Alia's fees, and AWB was warned that the Government of Iraq would not allow its ships to unload until Alia was paid. [302]

AWB's response

5.45 Shortly before the Independent Inquiry Committee's final report was released on 27 October 2005, AWB wrote to Mr Volcker, stating its position. This letter, dated 25 October 2005, was included in the final report[303]; it is reproduced as Figure 5.1.

Alkaloids of Australia Pty Limited

5.46 The Independent Inquiry Committee's report made no reference to Alkaloids of Australia Pty Limited other than in Tables 6, 7 and 8, which were annexed to the final report.[304] The IIC stated:

Tables 6, 7 and 8 provide information on humanitarian goods transactions. When reviewing the information presented in these tables, it is important to note that the Committee has not been able to obtain a complete set of records of kickback levy and payment data from all Iraqi ministries that were involved in the purchase of humanitarian goods under the Programme. Accordingly, these tables reflect a distinction between 'projected' kickback figures and 'actual' kickback figures. A 'projected' kickback figure indicates that the evidentiary basis for the conclusion that there was a kickback paid is Iraq's uniform policy of requiring the payment of kickbacks during certain time periods until July 2003 when the Coalition Provisional Authority reduced all contracts to eliminate estimated kickback amounts. An 'actual' amount reflects the fact that the Committee has acquired contract-specific payment data from the relevant ministry, from a banking institution, or the supplier itself or its collection/shipping agent.[305]

Figure 5.1 Letter from Mr Lindberg and Mr Stewart to Mr Volcker, 25 October 2005

Source: IIC final report, pp. 395-399; Ex 13, UNO.0005.0001 at 0402-0406.

5.47 Table 6 showed that Alkaloids of Australia entered into one contract for the sale of hyoscine butyl bromide with a face value of US$836,252. It showed contract disbursements of US$923,867. The table noted that the 'evidence of illicit payments' was based entirely on projections.[306] Table 7 repeated the information in Table 6 but added that there was a 'levied ASSF' (after-sales-service fee) of US$76,023 and there was 'paid ASSF' of US$83,988.[307] The table also stated that the 'company denies that it made payments to the Government of Iraq or its agents in violation of Programme'.[308] Table 8 repeated the information in Table 7 but added that the 'projected ASSF' levied or paid was 'based on Government of Iraq policy documents'.[309]

Rhine Ruhr Pty Limited

5.48 The Independent Inquiry Committee's final report made no reference to Rhine Ruhr Pty Limited other than in Tables 6, 7 and 8, annexed to the report. Table 6 indicated that the company entered into one contract for the sale of pipes with a face value of US$181,181 and that 'contract disbursements' were US$197,520.[310] It noted that the figures were 'based in whole or in part on actual data'. Table 7 repeated the data in Table 6 but added that there was 'levied ASSF' of US$16,470[311] and there was 'paid ASSF' of US$16,470; it noted that these reported amounts were 'based entirely on actual data'. It also stated that 'inland transportation fees' of US$1,500 were paid. It noted that the company had not responded to the Committee's letter of notice.[312] Table 8 repeated the information in Table 7 but stated that the 'levied ASSF' figure was based on company correspondence and documents, the 'paid ASSF' was based on 'ministry financial data', and the figure for 'inland transportation fees' was based on 'other documents'.[313]

Notes